Tuesday, October 9, 2012

IJM sees Scomi as an ideal investment vehicle to
regain a foothold in the oil and gas industry.

The group had previously divested its fabrication
business in 2007 after having seen its role as the main contractor diminished.

Having built up a diversified earnings base
(construction, property, plantations, building materials, infrastructure
concessions), IJM felt it needed a new growth angle to take the group to the
next level.

Specifically, Scomi provides the group with an instant
platform for IJM to participate in some Petronas jobs that require bumiputra
shareholding.

IJM had previously highlighted the possibility of
forging a joint-venture with Scomi to participate in some engineering works
under Petronas' massive RM60bil RAPID project in Pengerang, Johor.

The estimated RM149mil proceeds due from IJM would be
used to repay part of the group's RM500mil medium term notes.

For the last three years (2009-2010), the Scomi group
had embarked on a series of internal restructuring exercises which include the
disposal of under-performing foreign units.

In the
United States , Scomi hived off its
entire oilfield business where the run rate for jobs had shrunk as much as 80%
to around 40%. Similarly, the group is planning to exit the markets in
Nigeria and Algeria ,
and has reduced its UK
investments to 20%. Central to its restructuring plans are the internal
reorganisation within the group that will see Scomi Marine
emerge as an integrated oil and gas marine and drilling services provider. This
involves a reverse take-over (RTO) exercise that will marry Scomi's eastern
hemisphere oilfield services with Scomi Marine's offshore support services. As
part of the exercise, the minority shareholders of SOL and two other units
currently parked directly under the Scomi Group
ie SKMC and Scomi Sosma would also migrate into the enlarged Scomi Marine
entity.

Post-restructuring,
the effective stake that Scomi will hold in Scomi Marine would rise from 43% to
66%. Scomi Marine made a capital repayment of RM136mil (RM0.18.5 sen per share)
on 29 Sept 29 through the reduction of its par value (from RM1 per share to 45
per share) that gave rise to RM525mil. The balance RM330mil is to be set off
the entire accumulated losses of Scomi Marine. This would result in Scomi
Marine emerging with a cleaner balance sheet and a debt/EBITDA ratio of about
two times (including working capital).

Taken together, do
not discount the possibility of seeing Scomi Marine being chosen as the vehicle
to bid for future contract bids rather than its parent, Scomi. By extension,
this would also reduce the risk of IJM having to inject more equity into the
Scomi group beyond its RM149mil investments.

Scomi's management revealed two key
engines of growth which it believes would propel Scomi Marine to the next
level. One is expanding core product base. Scomi shared that the group has an
estimated share of 7% in the Eastern hemisphere drilling fluids and waste
management market worth US$5bil.